STOCKHOLDERS AGREEMENT ISRAEL PETROLEUM COMPANY, LIMITED
ISRAEL
PETROLEUM COMPANY, LIMITED
This
STOCKHOLDERS AGREEMENT
(this “Agreement”) is
entered into as of November 14, 2009, by and among Israel Petroleum Company,
Limited, a Cayman Islands limited company (the “Company”), Bontan Oil &
Gas Corporation, an Ontario corporation (“Bontan”), Allied Ventures
Incorporated, a Belize corporation (“2.5% Holder”) and
International Three Crown Petroleum LLC, a Colorado limited liability company
(“ITC” and together with
Bontan and 2.5% Holder, the “Stockholders”, and each
individually, a “Stockholder”). In
addition, Bontan Corporation Inc., an Ontario corporation and owner of 100% of
the shares of Bontan (“Bontan
Parent”), is joining this Agreement for the purposes identified
within.
RECITALS
A. ITC
has previously entered into that certain Option Agreement for Purchase and Sale
(the “Option
Agreement”), dated October 15, 2009, between ITC and PetroMed
Corporation, a Belize corporation (“PetroMed”), pursuant to which
ITC obtained, among other things, an exclusive option to purchase PetroMed’s
interest in the Offshore Israel Project.
B. The
Stockholders have formed the Company for the purpose of, among other things,
acquiring PetroMed’s interest in the Offshore Israel Project, and each of ITC,
Bontan and 2.5% Holder have contributed, and, in the case of Bontan, committed
to contribute, certain assets to the Company in exchange for ordinary voting
shares of the Company (“Shares”) representing a 22.5%
equity interest, a 75% equity interest and a 2.5% equity interest in the
Company, respectively, as set forth in that certain Contribution and Assignment
Agreement, dated as of November 14, 2009, by and among ITC, Bontan, 2.5% Holder,
Bontan Parent and the Company.
C. The
Memorandum of Association of the Company was filed with the Registrar of the
Cayman Islands on November 11, 2009, and the Company was formed pursuant to and
in accordance with the Companies Law (2009 Revision) of the Cayman Islands (the
“Companies
Law”).
D. The
parties hereto desire to enter into this Agreement in order to provide for the
management of the Company and to provide certain rights of first refusal,
information rights and other rights to the respective Stockholders as set forth
herein.
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AGREEMENT
NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which is acknowledged, the parties
hereto agree as follows:
1. Contributions. Each
of the Parties acknowledges and agrees that the fair market value of ITC’s and
Bontan’s initial capital contributions represent all of the initial capital
contributed to the Company, that Bontan’s initial capital contribution
represents 75% of the total initial capital of the Company and ITC’s initial
capital contribution represents 25% of the total initial capital of the Company,
and that for U.S. partnership tax and accounting purposes the Stockholders’
capital accounts shall reflect the foregoing. The Stockholders may make
additional contributions to the capital of the Company from time to time, but
the Stockholders shall not be required or obligated to make any contributions to
the capital of the Company other than as set forth in the Contribution
Agreement.
2. Management.
(a) Management Vested in a
Single Director. Responsibility for the management of the
business and affairs of the Company shall be vested in a single Director (the
“Director”). Except
as otherwise provided in this Agreement, the Director shall have all right,
power and authority to conduct the business and manage the affairs of the
Company. The Director may, in the Director’s sole discretion, appoint
any officers of the Company that the Director deems appropriate and may delegate
to such officer or officers any responsibilities for the day-to-day operation
and conduct of the business of the Company that the Director deems
appropriate. In conducting the business and managing the affairs of
the Company, the Director shall have all rights, duties and powers conferred by
the Companies Law, and, except as otherwise provided in this Agreement, is
hereby expressly authorized, on behalf of the Company, to make all decisions
with respect to the Company’s business and affairs and to take all actions
necessary to carry out such decisions, including, except as otherwise provided
in the this Agreement, the right, power and authority to cause the Company to
take any action that would otherwise require the consent or approval of the
Stockholders of the Company. Except as otherwise provided in this
Agreement, the Stockholders, in their capacity as stockholders of the Company,
shall take no part in the control, management, direction or operation of the
business and affairs of the Company, and the Stockholders shall have no right,
power or authority to vote on or consent to any action of the Company or any
other matter. No Stockholder shall have the power or authority to bind the
Company.
(b) Additional Responsibilities
of the Director: In addition to the responsibilities, rights,
powers and authority granted to the Director in Section 2(a), the Director shall
have the responsibility, right, power and authority to make all elections
provided in the Option Agreement, including, but not limited to, whether to
exercise the Option, and such elections shall bind the Company and Bontan Parent
The Director shall also have authority to execute and deliver all instruments
and documents, perform all acts, and cause the Company to make all payments
necessary or appropriate to consummate the Closing under the Option Agreement
and to obtain all approvals, transfers, or documents necessary or appropriate to
vesting ownership of the Licenses and Permit in the Company, all on such terms
and conditions as the Director shall deem appropriate in its good faith
judgment.
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(c) Appointment and Removal of
Director.
(i) The
initial Director shall be ITC (the “Initial Director”) and the
Initial Director shall serve in such capacity until its resignation or
removal. The Initial Director may not be removed by the Stockholders
other than:
(A) for
willful misconduct of the Initial Director that materially and adversely affects
the Offshore Israel Project (as defined below), which shall include the
conviction of the manager of the Initial Director for a crime in connection with
the operation or management of the Offshore Israel Project; or
(B) in
the event that a controlling interest in ITC is transferred to a Person who is
not a Qualified Buyer (as defined below) and thereafter the management team of
ITC is not substantially the same as the management team of ITC prior to such
transfer.
The
Initial Director may be removed pursuant to this clause (i) only by the
resolution or the written consent of the Stockholders holding a majority of the
Shares. Subject to clause (iii) below, in the event of the removal of
the Initial Director pursuant to the preceding sentence, the Stockholders may
replace the Initial Director and remove and replace any subsequent Director at
any time and from time to time by the vote of the Stockholders holding at least
80% of the Shares.
(ii) The
Director (including the Initial Director) may resign at any time by giving
written notice of its or his resignation to each of the Stockholders, and the
Director shall have no liability to the Company or the Stockholders as a result
of such resignation. Subject to clause (iii) below, upon any Director’s
resignation, the Stockholders holding at least 80% of the Shares shall replace
the Director by their resolution or written consent.
(iii) Subject
to ITC’s prior compliance with Section 5 hereof, in the event that ITC transfers
a majority of the Shares held by ITC on the date hereof to any Person that has
experience in the oil and gas industry substantially equivalent to, or greater
than, that of ITC (a “ Qualified Buyer”), then such
Qualified Buyer (and only such Qualified Buyer) shall have the sole authority to
appoint and remove the Director; provided, however, that any such Director may
be removed by Stockholders holding a majority of the Shares in the event of such
Director’s willful misconduct that materially and adversely affects the Offshore
Israel Project), which shall include the conviction of the Director, or any
officer, director or manager of the Director, for a crime in connection with the
operation or management of the Offshore Israel Project. In the event
of the removal of the then serving Director pursuant to the preceding sentence,
the Stockholders may replace such Director and remove and replace any subsequent
Director at any time and from time to time by the vote of the Stockholders
holding at least 80% of the Shares.
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(d) Actions Requiring the
Approval of the Stockholders. Notwithstanding the power and
authority granted to the Director hereunder, the Director shall have no
authority to cause the Company to, and the Company shall not, either directly or
indirectly by amendment, merger, consolidation or otherwise, take any of the
following actions unless the same is approved by the resolution or the written
consent of the Stockholders holding a majority of the Shares:
(i) expand
the scope of the Company’s business beyond the acquisition, development and
potential farmout or sale of the Israeli Drilling Licenses Nos. 347 (Xxxxx) and
348 (Xxxx) and Exploration Permit No. 199 (Xxxxxxxx) and any License that may be
issued in lieu of such permit (collectively, the “Licenses and Permit”) and the
exploitation and commercialization of the Licenses and Permit, including the
exploration, operation and development of thereof (the “Offshore Israel
Project”);
(ii) enter
into any transaction involving the sale, conversion or merger of the Company
with or into any other Person or the sale or other disposition of all or
substantially all of the Company’s assets to any other Person (other than a sale
or farmout to an industry partner that is not affiliated with ITC, Xxxxxx, 2.5%
Holder or the Director in connection with a commitment to conduct exploratory or
development operations on the Licenses and Permit, if such arrangement does not
affect Bontan’s interest in the Company differently than such arrangement
affects ITC’s and 2.5% Holder’s interests in the Company other than by virtue of
Bontan’s proportionately larger equity interest in the Company or resulting from
ITC’s Success Fees as described below or other compensation arrangements in
effect between the Company and ITC, Xxxxxx or the Director or any affiliate of
ITC, Xxxxxx or the Director);
(iii)
issue any Shares or other equity interest (including any securities directly or
indirectly convertible or exchangeable for Shares or other equity interests) in
the Company to any Person or otherwise admit any additional Person as a
stockholder of the Company, provided that this clause (iii) shall not apply to a
Transfer (as defined below) of Shares complying with the provisions of Section 5
hereof;
(iv) liquidate,
dissolve or wind-up the business and affairs of the Company;
(v) enter
into any contract or agreement between the Company and ITC, Xxxxxx, 2.5% Holder
or the Director, or any affiliate of ITC, Xxxxxx, 2.5% Holder or the
Director;
(vi) modify
any compensation arrangement between the Company and ITC, Xxxxxx, 2.5% Holder or
the Director, or any affiliate of ITC, Xxxxxx, 2.5% Holder or the
Director;
(vii) amend,
alter, terminate or repeal the Memorandum of Association;
(viii) amend,
alter, terminate or repeal this Agreement; or
(ix) redeem
any Shares or other equity interests (including any securities directly or
indirectly convertible or exchangeable for Shares or other equity interests) in
the Company, including pursuant to Section 5(b)(iv) below.
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(e) Certain Actions Not
Requiring the Approval of the Stockholders: In furtherance of
Section 2(a) and notwithstanding the foregoing Section 2(d), the following
actions shall be subject to the Director’s sole authority as Director; provided
that (1) with respect to clauses (i), (ii) and (iii) only, such action does not
involve a transaction between the Company and any of ITC, Xxxxxx, 2.5% Holder,
the Director, or any of their respective affiliates, and (2) such arrangement
does not affect Bontan’s interest in the Company differently than such
arrangement affects ITC’s and 2.5% Holder’s interests in the Company (other than
by virtue of Bontan’s proportionately larger equity interest in the Company or
resulting from ITC’s Success Fees (as described below) or other compensation
arrangements in effect between the Company and ITC, Xxxxxx or the Director or
any affiliate of ITC, Xxxxxx or the Director):
(i) the
farmout, option, sale, assignment, mortgage, or other transfer of all or a
portion of the Offshore Israel Project for the purpose of conducting exploratory
or development operations on the Licenses or Permit;
(ii) seeking
any additional debt or equity financing for the Company or the Offshore Israel
Project; provided,
however, the actual approval of any equity financing that entails the
issuance of Shares or any other equity interest (including any securities
directly or indirectly convertible or exchangeable for Shares or other equity
interests) in the Company to any Person, or the admittance of any Person as a
stockholder of the Company, requires approval by the resolution or the written
consent of the Stockholders holding a majority of the Shares, except with
respect to a Transfer (as defined below) of Shares complying with the provisions
of Section 5 hereof;
(iii) entry
into consulting agreements and broker agreements on behalf of the
Company;
(iv) the
indemnification by the Company of any officer, employee or agent of the Company
or any other Person in accordance with this Agreement;
(v) the
authorization, making, payment or distribution of any distribution or dividend
to the Stockholders; or
(vi) payment
to ITC or the Director of the Success Fees and Management Fee as provided below
or reimbursements as provided in this Agreement or in the Contribution
Agreement.
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(f) Action of the
Stockholders.
(i) Unless
otherwise provided by the rights and preferences of the Shares held by a
Stockholder, each Stockholder shall have one vote for each Share
held. However, if Shares are designated by percentages, then each
Stockholder shall have the number of votes corresponding to his or its
percentage interest of voting Shares. Whenever a matter referred to
in this Agreement requires approval by resolution of the Stockholders, the
Director shall promptly give written notice to all Stockholders entitled to vote
of the purpose of the meeting and the action to be taken and the date, time and
place of a meeting of the Stockholders to consider and vote upon such
action. A Stockholder entitled to vote that holds at least 10% of the
outstanding voting Shares may also demand the holding of a meeting of the
Stockholders for a purpose provided hereunder by giving written notice to the
Company. In such case, the Director shall give written notice of such
meeting within ten (10) business days. If the Director fails to
timely call such meeting, the demanding Stockholder(s) may call the meeting by
providing written notice to the Stockholders as otherwise provided
herein. All meetings of Stockholders shall be held on at least ten
(10) days’ prior written notice. A quorum of the Stockholders is
required to take action at any meeting, which shall constitute the holders of a
majority of the Shares entitled to vote at such meeting. Stockholders
may participate in meetings by teleconference or by
proxy. Stockholders may waive notice before or after a meeting in
writing, or by participation at a meeting (other than to object to the holding
of a meeting for lack of adequate notice).
(ii) The
Stockholders may also take action in writing at any time on any matter in lieu
of a meeting of the Stockholders. The written approval of the holders
of a majority of the outstanding voting Shares of the Company shall constitute
action of the Stockholders. The Company shall give prompt written
notice of the taking of any action in writing to those Stockholders who did not
consent to the action so taken.
3. Reimbursements; Fees;
Royalties and Commissions.
(a) Reimbursement. The
Director shall be reimbursed by the Company for the reasonable out-of-pocket
costs incurred by the Director on behalf of the Company, including legal
expenses, consulting fees and costs, travel expenses to Israel and living
expenses in Israel, and expenses of copying, telephone, internet and similar
items or services. The Director shall submit invoices to the Company,
with a copy to the other Stockholders, on a periodic basis, but no less often
than monthly, for its costs and expenses, and shall include with each such
invoice a brief description of the work performed by the Director and the
Company and the costs and expenses incurred, together with such supporting
documentation as shall be reasonably requested by the
Stockholders. The Company shall pay each invoice within fifteen (15)
days of its receipt thereof. Notwithstanding the foregoing, the
Director shall not be entitled to reimbursement by the Company for any overhead
costs or costs or fees of employees of the Company without the prior written
consent of the Stockholders holding a majority of the Shares.
(b) Management
Fee. The Company shall pay to the Director a monthly
management fee of $20,000.00, payable in advance, beginning December __, 2009,
and on the first day of each subsequent month, for the Director’s services as
manager of the Company. The management fee shall be pro-rated for the
month of November 2009, starting with November __, 2009, and this pro-rated
amount shall be payable within thirty (30) days after the date of this
Agreement.
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(c) Success
Fees.
(i) Upon
receipt by Bontan Parent of at least $900,000 pursuant to any Financing (as
defined in the Contribution and Assignment Agreement of even date herewith
between the Parties), the Company shall pay to ITC the sum of $42,500 for
services predating the execution of this Agreement.
(ii) Following
the Closing under the Option Agreement, for any farmout, option, sale,
assignment, mortgage or other transfer of all or a portion of the Offshore
Israel Project (each an “Offshore Israel Project
Transfer”), (A) the Company shall upon closing of such transaction pay to
ITC an amount equal to the Calculated Percentage (as defined below) of the gross
cash proceeds received by the Company or its Stockholders with respect to such
Offshore Israel Project Transfer (the “Cash Proceeds”) and (B) Bontan
Parent shall issue to ITC a warrant in substantially the form attached to the
Contribution Agreement as Exhibit D to purchase that number of shares of common
stock of Bontan Parent equal to (x) the Calculated Percentage of the fair market
value of all consideration received by the Company, including the cash proceeds
and any other consideration (calculated by reference to the estimated cost of
drilling xxxxx to be undertaken by the transferee or of performing such other
work to be done by the transferee and provided for in any agreement made in
connection with the Offshore Israel Project Transfer, or as shall otherwise be
appropriate), divided by (y) the Market Price (as defined in the form of
Warrant) as of the date of issuance of the Warrant. Such warrants
shall have an initial exercise price equal to such Market Price and shall have a
term of five (5) years. The “Calculated Percentage” is
equal to 5% of the percentage ownership interest of Bontan in the Company at the
time of the triggering event in (A) or (B) above. For clarification,
the Calculated Percentage, based on the initial ownership interests of the
Parties at the date of this Agreement, is 3.75% (i.e., 75% of 5%).
(iii) ITC
shall also receive an amount equal to $50,000 for every $1,000,000 increase in
current assets received by the Company or Bontan Parent (without double
counting) from investors or other parties introduced by ITC to the Company or
Bontan Parent, calculated for each increase of current assets. Such
amount shall be payable to ITC within 15 days following such increase in current
assets, and shall be payable by whichever of the Company or Bontan Parent
receives the additional current assets.
(d) Director Benefits and
Taxes. The Director shall not be entitled to any unemployment
insurance, medical, disability or life insurance, bonus, or other benefits
provided by the Company to its employees by virtue of the Director’s service as
the Director of the Company. The Company shall not withhold taxes,
FICA or other payments out of any consideration payable to the Director
hereunder. The Company shall furnish the Director on a timely basis,
a Form 1099 covering the payments made to it hereunder, and the Director shall
pay all required foreign, federal, state and local taxes on the payments made to
it hereunder, including income tax, self-employment tax, Social Security tax and
other payroll taxes, as may be applicable. The Director will
indemnify and hold the Company harmless against any claim relating to such
taxes.
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4. Information.
(a) The
Director shall cause the Company to provide all Stockholders and Bontan Parent
with such information as the Stockholders or Bontan Parent shall reasonably
request in connection with the management of the business and financial affairs
of the Company, including but not limited to, information reasonably requested
by Bontan Parent in order for Bontan Parent to satisfy its public reporting
obligations under U.S. and Canadian securities law, its obligations under the
Ontario Business Corporations Act and its internal controls documentation
requirements under the U.S. Xxxxxxxx-Xxxxx Act of 2002 and the regulations
thereunder (“SOX”). In
furtherance of the foregoing, the Director shall advise Bontan Parent as soon as
reasonably practicable of (i) the Company’s execution or termination of any
material contract, (ii) the Company’s acquisition or disposition of a
significant amount of assets other than in the ordinary course of business, or
(iii) if a material charge to any of the Company’s assets is required under
United States generally accepted accounting principals. The Director
also shall use commercially reasonable efforts to cause the Company to maintain
its financial records in accordance with Bontan’s reasonable requests, and, if
requested to do so by Bontan Parent, the Company will appoint the same firm of
independent accountants as Bontan Parent utilizes to serve as the Company’s
independent accountants and will cooperate with such firm as to any quarterly
reviews or annual audit of financial statements. No less than
quarterly, the Company shall provide to the Stockholders unaudited operating
financial information. Unless Bontan Parent has otherwise arranged
for an annual audit of the Company’s financial statements, the Company shall
deliver audited financial statements to each Stockholder not later than 90 days
after the end of each calendar year. Each Stockholder and Bontan
Parent shall have the right, at its own expense, and upon at least seven
business days written notice to the Company, to inspect and audit the books and
records of the Company, such inspection to occur at reasonable times and shall
be subject to any applicable confidentiality restrictions in effect on the
Company. On a quarterly basis, the Company shall otherwise keep the
Stockholders and Bontan Parent reasonably informed of all material developments
affecting the Company and the Offshore Israel Project. The keeping of
the Company’s books and records, preparation of the Company’s unaudited
financial statements and annual audit (unless the auditors are designated by
Bontan Parent) is an expense of the Company. The provision of any
information requested by any Stockholder or Bontan Parent and the specific use
of any accounting firm at the request of Bontan Parent pursuant hereto shall be
at the sole cost and expense of the person (whether a Stockholder or Bontan
Parent) making such request, and each Stockholder and Bontan Parent agrees to
reimburse the Company and the Director for any such cost or
expense.
(b) ITC
acknowledges that, by virtue of Bontan’s equity interest in the Company, the
business and financial information of the Company is material to the business
and affairs of Bontan Parent. As such, ITC may be subject to certain
restrictions on trading in Bontan Parent’s securities when it is in possession
of non-public information that is material to the business and affairs of Bontan
Parent.
5. Restrictions on Sale or
Transfer of Interest/Shares.
(a) General
Prohibition. No Stockholder shall sell, assign, transfer,
give, pledge, encumber or in any way dispose of (collectively, a “Transfer”), any Shares, or
enter into an agreement to Transfer any Shares, without the Director’s prior
written consent, which consent may not be unreasonably withheld, and unless (a)
such Stockholder has complied with the provisions of this Section 5, and (b) the
transferee of any such Shares has agreed to be bound by the terms of, and become
a party to, this Agreement. Any purported Transfer in violation of
any provision of this Agreement shall be void and ineffective and shall not
operate to Transfer any interest or title to the purported transferee, and
neither the Director nor any other Person shall be required to register such
prohibited Transfer on the books and records of the Company.
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(b) Right of First
Refusal.
(i) If
at any time, other than pursuant to an Exempt Transfer (as defined below), any
Stockholder (a “Seller”)
desires to Transfer any or all of the Shares or any rights to Shares held by
such Seller to any Person, such Seller shall reduce to writing the terms
pursuant to which the Seller desires to Transfer such Shares (a “Transfer
Offer”). The Transfer Offer shall identify the number of
Shares to be transferred, the consideration payable for the Shares, if any, the
identity of the proposed transferee, and all the other terms and conditions of
such Transfer Offer. The Seller shall deliver the Transfer Offer to
the Company and the other Stockholders (each, a “Transfer Offeree” and
collectively, the “Transfer
Offerees”).
(ii) Subject
to the conditions set forth in Section 5(b)(i), each of the Transfer Offerees
shall have the right to purchase up to his, her or its pro rata portion of the
Shares offered in the Transfer Offer, on the terms therein, exercisable by
written notice to the Seller within 25 days of receipt of the Transfer
Offer. For purposes of this Section 5(b)(ii), pro rata portion is
determined by the respective Share holdings of each Transfer Offeree, expressed
as a percentage of the total number of Shares held by all Transfer
Offerees.
(iii) If,
after expiration of the 25-day period in Section 5(b)(ii), any Shares subject to
the Transfer Offer remain unsubscribed, then the Seller shall, by written notice
(the “Second Notice”) no
later than three business days after expiration of such 25-day period, offer the
Transfer Offerees who have elected to purchase Shares under Section 5(b)(ii)
(the “Participating Transfer
Offerees”) the right to purchase their pro rata portion of the
unsubscribed Shares, such right exercisable by written notice to the Seller
within five days of receipt of the Second Notice. The Second Notice
shall state the number of unsubscribed Shares and the pro rata portion of those
Shares for each Participating Transfer Offeree. For purposes of this
Section 5(b)(iii), pro rata portion is determined by the respective Share
holdings of each Participating Transfer Offeree, expressed as a percentage of
the total number of Shares held by all Participating Transfer
Offerees. Participating Transfer Offerees electing to purchase
unsubscribed Shares under this Section 5(b)(iii) may assign to each other some
or all of their pro rata portion.
(iv) If
the Transfer Offerees elect to purchase all, but not less than all, of the
Shares subject to the Transfer Offer, the closing of the purchases of Shares by
the Participating Transfer Offerees shall take place at the principal office of
the Company no more than 15 days after the expiration of the Transfer
Offer. At such closing, the Participating Transfer Offerees shall
deliver a certified check or checks or wire transfers of immediately available
funds in the appropriate amount to the Seller against delivery of certificates
representing the Shares so purchased, duly endorsed in blank for transfer or
accompanied by a stock power duly executed in blank. In the event
that the consideration specified in the Transfer Offer is other than cash, then
the Participating Transfer Offerees may, at their option, deliver at such
closing cash, in lieu of such other consideration, in an amount equal to the
fair market value of such other consideration, as agreed upon by the parties or
as determined by an independent appraisal, agreed upon by the
parties.
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(v) The
right of first refusal granted to the Stockholders pursuant to this Section 5(b)
shall terminate with respect to a Transfer Offer if the Participating Transfer
Offerees elect to purchase less than all of the Shares offered in the Transfer
Offer. In that event, the Seller shall then have the right, for a
period of 50 days from the termination of the Transfer Offer, to Transfer all,
but not less than all, of the Shares subject to the Transfer Offer to the
proposed transferee in accordance with the terms of the Transfer
Offer. If the Seller has not completed the sale of all such Shares
within such 50-day period, the Seller shall no longer be permitted to Transfer
such remaining Shares pursuant to this Section 5(b) without again fully
complying with the provisions hereof.
(vi) Notwithstanding
the foregoing, no Transfer may be made to any Person unless such Person agrees
in writing, in form and substance reasonably acceptable to the Company, to be
bound by the provisions of this Agreement. Promptly after any
Transfer pursuant to this Section 5(b), the Seller shall notify the Company of
the consummation thereof and shall furnish such evidence of the completion,
including time of completion, of such Transfer and of the terms thereof as the
Company may reasonably request.
(c) Exempt
Transfer. As used herein, the term “Exempt Transfer” shall mean a
Transfer between a Stockholder and either (a) any Person that, directly or
indirectly, through one or more intermediaries, has voting control of, is
controlled by, or is under common voting control with, such Stockholder; (b)
with respect to natural persons, such Stockholder’s spouse, parents, children,
siblings and/or grandchildren; (c) a trust, corporation, partnership or other
entity, whose beneficiaries, stockholders, partners, or owners, or other Persons
holding a controlling interest, consist of such Stockholder and/or such other
Persons referred to in the immediately preceding clauses (a) or (b); (d) with
respect to any Stockholder that is a partnership, a limited partnership, a
limited liability company or a corporation, such Stockholder’s partners, members
or stockholders; or (e) the Company pursuant to the terms of an employment
agreement, stock option agreement or similar agreement between such Stockholder
and the Company; provided that in the event of any Transfer made pursuant to one
of the exemptions provided by clauses (a), (b), (c) and (d), (i) the
Stockholders shall inform the Company of such transfer and (ii) the transferee
shall enter into a written agreement to be bound by and comply with all
provisions of this Agreement, as if it were an original Stockholder hereunder,
as applicable.
(d) Opinion of
Counsel. Notwithstanding any provision herein to the contrary,
if timely requested by the Company, no Stockholder shall Transfer any Shares
unless such Stockholder shall first obtain an opinion of counsel satisfactory to
the Company to the effect that such Transfer is either exempt from the
registration provisions of the Securities Act (as defined below) or that the
Securities Act is inapplicable to such Transfer.
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6. Representations, Warranties
and Acknowledgments of the Stockholders. Each Stockholder
hereby acknowledges, and represents and warrants to the Company and the Initial
Director, that, (i) its investment in the Company and its rights hereunder
constitutes a “security” as defined in the Securities Act of 1933, as amended
(the “Securities Act”)
and/or state “blue-sky” laws, (ii) its investment in the Company has not been
registered under the Securities Act or any state law, and that it is being sold
to the Stockholder in reliance upon an exemption from the registration
requirements of the Securities Act or any state law for transactions which do
not involve a public offering, (iii) the Stockholder may not sell, offer for
sale, transfer, pledge or hypothecate all or any part of its interest in the
Company in the absence of an effective registration statement covering such
interest under the Securities Act unless such sale, offer of sale, transfer,
pledge or hypothecation is exempt from registration under the Securities Act
(iv) except as to Bontan, the Stockholder is an “accredited investor” as such
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act, (v) the Stockholder is sophisticated with respect to, and has substantial
knowledge and experience in, business matters generally, and oil and gas
investments specifically, has made investments in oil and gas interests in the
past, and is capable of evaluating all the merits and risks of an investment in
the Company, (vi) the Stockholder has reviewed its investment in the Company
with its tax and legal counsel to the extent it deems the same advisable (vii)
the Stockholder is making its investment in the Company for its own account, for
investment, and not with a view to, or for resale in connection with, any
distribution within the meaning of the Securities Act, (viii) the Stockholder
recognizes that an investment in the Company is speculative and involves
substantial risk, and that oil and gas exploration and development, in
particular, is an unpredictable and high risk investment; and (ix) neither the
Company nor the Initial Director have made any guaranty or representation upon
which the Stockholder has relied concerning the possibility or probability of
profit or loss as a result of its membership interest in the Company and that
all information that the Stockholder has provided to the Company, concerning
itself and its financial position is true and accurate.
7. Other
Activities. The Director and each of the Stockholders, and any
of their respective affiliates, may engage in any other activities he or it
chooses, and it is specifically recognized that the Director and the
Stockholders, and their respective affiliates or affiliated Persons, are
currently or may hereafter be engaged in the exploration for, and production of,
oil and gas, both for their own accounts and for others, and nothing herein
shall prevent the Director, the Stockholders, or any of their respective
affiliates or related Persons, from engaging in such activities, individually or
jointly with others, in any locale. Neither the Director nor the Stockholders,
nor any of their respective affiliates or related persons, is required to offer
the other (or the Company) the right to participate in any other business,
activity or operation in which it may engage, and the Director and each of the
Stockholders hereby waive, relinquish and renounce any such right or claim of
participation.
8. Distributions other than
Upon Dissolution. Subject to Section 9 and the limitations and
requirements set forth in the Companies Law, the Company shall make
distributions to the Stockholders at such times and in such amounts as the
Director deems advisable; provided that each
Stockholder may require annual distributions of the minimum amount necessary to
cover its tax liability resulting from its ownership of the
Company.
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9. Winding Up, Dissolution and
Distributions Upon Dissolution.
(a) Upon
dissolution of the Company, the Director shall wind up the business and affairs
of the Company, and shall cause all property and assets of the Company to be
distributed as follows:
(i) first,
all of the Company’s debts, liabilities, and obligations, of the Company shall
be paid in full or reserves therefor shall be set aside; and
(ii) any
remaining assets shall be distributed to the Stockholders in accordance with
their respective percentage equity interests in the Company.
(b) Upon
the completion of the distribution of Company assets as provided above, the
Company shall be terminated and the Director shall file the articles of
dissolution or other appropriate document as required by the Companies Law and
shall take such other actions as required by the Companies Law or as otherwise
may be necessary to terminate the Company.
10. Exculpation;
Indemnification. The Director shall not be liable to the
Company or any of the Stockholders for any act or failure to act, nor for any
errors of judgment, but only for willful misconduct or gross negligence in its
management of the business and affairs of the Company. The Company
shall indemnify and hold harmless the Director and the Director’s affiliates,
and any agents, officers, and employees, if any, of the Director and such
affiliates, from and against any and all loss, liability or damage incurred as a
result of any act or omission, or any error of judgment, related to the
Director’s management of the business and affairs of the Company unless such
loss, liability or damage results from the Director’s willful misconduct or
gross negligence. The Company shall indemnify and hold harmless any
of the Company’s officers, agents, Stockholders and control Persons, as well as
their respective affiliates, from and against any and all loss, liability or
damage incurred as a result of any act or omission, or any error of judgment,
related to such officer’s, agent’s, Stockholder’s or control Person’s
performance of his or its duties or actions with respect to the Company, unless
such loss, liability or damage results from the willful misconduct or gross
negligence of such officer, agent, Stockholder or control Person. The
indemnification rights provided by this Section 10 shall survive the termination
of this Agreement and shall continue as to any Person who has ceased to be a
Director, officer, agent, Stockholder or control Person of the Company and shall
inure to the benefit of the personal representatives, heirs, executors and
administrators of such Person.
Notwithstanding
the above, it is a condition of any indemnification by the Company that, with
respect to the acts or omissions alleged, the prospective indemnitee (i) acted
in good faith, (ii) acted in a manner that such person reasonably believed to be
in or not opposed to the best interests of the Company, and (iii) in the case of
a criminal proceeding, had no reasonable cause to believe that such person’s
conduct was unlawful.
11. Definitions. As
used in this Agreement, the following terms have the following
meanings:
“Person” means any individual,
sole proprietorship, partnership, limited liability company, joint venture,
company, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.
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12. Tax
Principles. The Director shall have sole authority to make all
tax elections and other decisions relating to taxes regarding the
Company. The Director shall cause the Company to timely elect (such
election to be effective from the formation of the Company) under applicable
U.S. Treasury regulations to be treated as a partnership for U.S. tax purposes,
and to file any required forms (including U.S. Treasury Form 8832) with the
applicable taxing authorities. To the extent relevant for U.S. tax
purposes, as determined by the Director in its sole discretion:
(a) The
Company shall maintain capital accounts for its stockholders in accordance with
U.S. Treasury Regulation 1.704-1(b);
(b) All
"profit" or "loss" of the company shall be allocated in accordance with the
Stockholders percentage share ownership in the Company, and "profit" or "loss"
shall mean the profit or loss of the Company as determined under the capital
accounting rules of U.S. Treasury Regulation § 1.704-1(b)(2)(iv) for purposes of
adjusting the capital accounts of the Stockholders, including, without
limitation, the provisions of paragraphs (b), (f) and (g) of those regulations
relating to the computation of items of income, gain, deduction and
loss;
(c) Notwithstanding
the preceding clause (b), the following allocations shall apply:
(i) the
"qualified income offset" provisions of U.S. Treasury Regulation Section 1.704
1(b)(2)(ii)(d) are incorporated herein by reference and shall apply to adjust
the allocation of profit and loss otherwise provided for under clause (b) to the
extent provided in that regulation;
(ii) the
"minimum gain" provisions of U.S. Treasury Regulation Section 1.704 2 are
incorporated herein by reference and shall apply to adjust the allocation of
profit and loss otherwise provided for under clause (b) to the extent provided
in that regulation;
(iii) notwithstanding
the provisions of clause (b), if during any fiscal year of the Company the
allocation of any loss or deduction, net of any income or gain, to a Stockholder
would cause or increase a negative balance in a Stockholder’s capital account as
of the end of that fiscal year, only the amount of such loss or deduction that
reduces the balance to zero shall be allocated to the Stockholder and the
remaining amount shall be allocated to the other Stockholders. For
purposes of the preceding sentence, a capital account shall be reduced by the
adjustments, allocations and distributions described in U.S. Treasury
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6), and increased by the
amount, if any, of the negative balance in the Stockholder's capital account
that the Stockholder is obligated to restore within the meaning of U.S. Treasury
Regulation § 1.704-1(b)(2)(ii)(c) as of that time or is deemed obligated to
restore under U.S. Treasury Regulation Section 1.704-2(g)(1) or § 1.704 2(i)(5);
and
(iv) all
allocations pursuant to the foregoing provisions of this clause (c) (the
"Regulatory Allocations") shall be taken into account in computing allocations
of other items under clause (b), including, if necessary, allocations in
subsequent fiscal years, so that the net amounts reflected in the Stockholders’
capital accounts and the character for income tax purposes of the taxable income
recognized (e.g., as capital or ordinary) will, to the extent possible, be the
same as if no Regulatory Allocations had been given effect.
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(d) The
Stockholders recognize that with respect to property contributed to the Company
by a Stockholder and with respect to property revalued in accordance with U.S.
Treasury Regulation § 1.704 1(b)(2)(iv)(f), there will be a difference between
the agreed values or "carrying values" of such property at the time of
contribution or revaluation and the adjusted tax basis of such property at that
time. All items of tax depreciation, cost recovery, amortization,
amount realized and gain or loss with respect to such assets shall be allocated
among the Stockholders to take into account the book-tax disparities in
accordance with the provisions of Sections 704(b) and 704(c) of the Internal
Revenue Code of 1986, as amended ("Code") and the U.S. Treasury Regulations
under those sections;
(e) In
the event of a Transfer of Shares, Section 706 of the Code will apply to
allocations of profit or loss in the year of the transfer, as determined by the
Director;
(f) To
the extent required as determined by the Director in its sole discretion, the
Company shall file all applicable U.S. tax returns and make all required tax
reporting to the Stockholders, and withhold from any distributions to
Stockholders any U.S. taxes required to be withheld under the Code and
applicable U.S. Treasury regulations; and
(g) The
Director shall be the "tax matters partner" under Section 6231(a) of the
Code.
In
discharging the Director’s responsibilities as tax matters partner, the Director
agrees to use commercially reasonable efforts to maintain the non-U.S. status of
the Company so as to minimize the potential for Bontan and Bontan Parent to
become subject to U.S. tax withholding, payment or filing requirements; provided
that, the Parties acknowledge and agree that ITC shall be managed within the
United States and shall carry out some or all of its responsibilities as a
Director of the Company within the United States, and this sentence shall not
prevent ITC from any of such activities.
13. Entire
Agreement. This Agreement, along with the Articles of
Association and Memorandum of Association of the Company, the Contribution
Agreement, and any exhibits hereto and thereto, along with any other documents
delivered pursuant hereto or thereto or pursuant to the Option Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and no party shall be liable or
bound to any other in any manner by any oral or written representations,
warranties, covenants and agreements except as specifically set forth herein and
therein. In the event of any conflict between this Agreement and the
Articles of Association or the Memorandum of Association of the Company, the
provisions of this Agreement will control. Each party expressly represents and
warrants that it is not relying on any oral or written representations,
warranties, covenants or agreements outside of this Agreement.
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14 -
14. Amendment. This
Agreement may be amended by an instrument in writing signed by each of the
parties hereto and approved in the manner prescribed in Section 2(e)
above.
15. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (but not including the choice
of law rules thereof).
16. Notices. All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified, (b)
when sent by confirmed electronic mail or facsimile if sent during normal
business hours of the recipient; if not, then on the next Business Day, (c) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (d) one (1) day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth below or at such other address
as such party may designate by ten days advance written notice to the other
parties hereto.
The
Company:
Israel
Petroleum Company, Limited
c/o
International Three Crown Petroleum, LLC
X.X. Xxx
000000
Xxxxxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: H.
Xxxxxx Xxxxxx
ITC:
International
Three Crown Petroleum, LLC
X.X. Xxx
000000
Xxxxxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attn: H.
Xxxxxx Xxxxxx
Bontan
and Bontan Parent:
00 Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx
Xxxxxx X0X 0X0
Attention: Xxx Xxxx,
Chairman and CEO
17. Severability. In
the event one or more of the provisions of this Agreement should, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.
18. Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
19. Binding
Effect. The provisions hereof shall inure to the benefit of,
and be binding upon, the parties hereto and their respective successors,
assigns, heirs, executors and administrators and other legal
representatives.
20. Assignment. No
party hereto shall assign any of its rights or obligations under this Agreement
without the prior written consent of the other parties, which may be withheld in
their absolute discretion, and any purported assignment by a party without such
prior consent shall be void.
[SIGNATURE
PAGE FOLLOWS]
\\\DE
- 075764/000630 - 435319 v10
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IN
WITNESS WHEREOF the
undersigned have executed this Agreement effective as of the date first above
written.
STOCKHOLDERS:
INTERNATIONAL
THREE CROWN PETROLEUM LLC, a Colorado limited liability company
By:_________/s/_____________________
Name:
______________________________
Title:
_______________________________
ALLIED
VENTURES INCORPORATED, a Belize corporation
By:_____________/s/____________________
Name:
______________________________
Title:
_______________________________
BONTAN OIL & GAS
CORPORATION,
an Ontario corporation
By:___________/s/______________________
Name:
______________________________
Title:
_______________________________
AS
TO THOSE MATTERS SPECIFICALLY REFERRED TO HEREIN:
BONTAN
CORPORATION INC., an Ontario corporation
By:__________/s/_______________________
Name:
______________________________
Title:
_______________________________
[signatures continued on next
page]
COMPANY:
ISRAEL
PETROLEUM COMPANY, LIMITED, a Cayman Islands limited company
|
|
By:
|
INTERNATIONAL
THREE CROWN PETROLEUM LLC, a Colorado limited liability
company
|
By:____/s/______________________
Name: H.
Xxxxxx Xxxxxx
Title:
Manager
INITIAL DIRECTOR:
INTERNATIONAL
THREE CROWN PETROLEUM LLC, a Colorado limited liability company
By:_______/s/______________________
Name: H. Xxxxxx Xxxxxx
Title: Manager
